Former vice president says that company withheld hundreds of millions in manufacturer discounts

In a suit filed in Delaware federal court, the former vice president of pharmaceutical contracting for Medco Health Solutions (Medco) has alleged that the Pharmacy Benefit Management (PBM) company defrauded several government health care plans of hundreds of millions of dollars by failing to pass along to consumers the savings of “secret” rebates. The complaint alleges violations of not just the False Claims Act (FCA) and Anti-Kickback Statute, but also accuses Medco of failing to comply with the terms of corporate integrity (CIA) agreements that it signed off on in 2006 with the Offices of Inspector General for both the U.S. Department of Health and Human Services and the Office of Personnel Management for nearly identical behavior to that alleged by the whistleblower.

Medco has long been one of the nation’s largest PBMs with net revenues of $70.1 billion in 2011. Subsequent to its merger with Express Scripts Inc. in 2012, those revenues ballooned even further to $93.9 billion. The whistleblower in the current case alleges that Medco, despite such healthy revenues, fraudulently classified certain manufacturer rebates as “purchase discounts” (a type of de minimis discount permitted under the CIA), so that it could retain hundreds of millions of dollars in discounts that, had they been properly handled as rebates, would have been passed on to its clients, including several government health care programs. He also claims that Medco defrauded the government by, “seeking and accepting kickbacks in the form of hidden discounts in confidential agreements from pharmaceutical manufacturers including the manufacturer AstraZeneca in exchange for favoring certain AstraZeneca drugs….”

The claims against Medco are in line with a number of lawsuits filed by federal and state governments, health plans, unions, and whistleblowers against PBMs and pharmaceutical companies over similar schemes that fail to disclose discounts to clients and provide kickbacks to pharmaceutical companies. Major settlements abound and there does not appear to be any end in sight, with three major FCA settlements having occurred in the last few weeks (Millennium Health for $256 million, Novartis for $390 million, and Warner Chilcott for $102 million). In each case, the misconduct occurred within the last few years – and even into 2015 – a clear indicator that despite a number of large FCA settlements across the pharmaceutical industry, a significant percentage of companies and executives are still not taking appropriate internal measures to ensure compliance with federal and state laws.

Whistleblower and governmental investigative activity continues to be very strong in the pharmaceutical industry. Every entity in the drug-supply chain, from manufacturers all the way down to local pharmacies, must make compliance with statutes regulating financial relationships along that chain and claims against federal health care reimbursement programs one of their highest priorities.

For further information on establishing effective compliance programs and avoiding potential liabilities under the FCA, Anti-Kickback Statute, and Stark Law, please contact the following FisherBroyles attorneys.

Brian E. Dickerson

Nicole Hughes Waid